Several years ago, no investor needed convincing that General Electric (GE) was a stock to sell. In fact, for most of this century GE stock shares were dead money. After General Electric peaked at around $60 a share in late 2000, the stock moved steadily downward before finding a comfortable range between $25 and $35 for the most of the decade.
But after the financial crisis, things got even worse. During the height of the global economic meltdown, the stock was one of the biggest dogs in the park — with a severe flea infestation. In March 2009 GE stock hit a historic intraday low of just $5.73. With shares cruising up around $20 now, some bulls are saying General Electric is a buy because it has bottomed out and will move back up to its old $30 range.
Don’t believe it. There are more reasons to sell this stock than to buy or hold. Here are the top five of them:
Weak revenue despite an earnings beat. On April 16, GE reported what can be generously described as a mixed bag of first-quarter earnings numbers. The company did report a profit of 21 cents a share in the period, and that number did top consensus forecasts for a profit of 17 cents a share. But that bottom-line GE earnings number was down 32% from the same period a year ago, and the revenue in Q1 fell 5% to $36.6 billion, well below the $37.3 billion forecast. General Electric made the numbers work on cost cutting, but how much longer can they beat the Street simply by cost reduction?
General Electric orders have slowed. While the overall slowdown in revenue is bad for GE stock, the picture appears even worse when we dig through the numbers. There was a big decline in new equipment orders in the company’s energy segment, which was down 24%, and in the aviation segment orders were down 21%. General Electric did see an 8% gain in healthcare equipment orders, but overall new equipment orders were down 10%.
GE dividend yeild flat. At the company’s annual shareholder meeting, CEO Jeff Immelt said, “The clouds are breaking and the forecast ahead of us is promising.” Then Mr. Immelt told shareholders, “Your dividend is going up again soon.” What does “soon” mean? According to GE, soon means not until 2011. If the stock didn’t raise its divided yield at the last annual meeting, it likely won’t for the rest of 2010. With all of the companies out there already increasing their dividend, you would think GE could as well. That may be a sign that General Electric isn’t doing as well as its competitors. And considering the company slashed its dividend during the recession, it has a long way to go to make things up to income oriented investors.
GE Capital scales back. After nine straight quarters of profit declines, GE has said it has learned its lesson and is determined to streamline operations and focus on its core industrial business. That means that what was once one of its most profitable businesses, GE Capital, is being scaled back. The company’s finance arm now is expected to generate 30-40% of overall corporate profits, which would be down substantially from years past. Can this revenue shortfall from GE Capital be replaced by its industrial businesses? So far, the answer is no.
General Electric stock is overextended. From a purely technical prospective, GE shares now trade well above both their short-term, 50-day, and long-term, 200-day moving averages. The stock is up over 25% year to date, and despite the bullish sentiment still wafting in the air, a significant move to the upside in the stock from here is highly unlikely.
To be certain, GE stock is not without its merits. The company does appear to be getting its fiscal house in order after the wrecking ball that was the global economic crisis and could be on the verge of a long-term growth curve. However, the issue of whether you should buy, sell or hold the shares now is another story. Unless you’re planning to hold GE stock for multiple years, you’re probably better off selling this blue chip stock.
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